EU drops fines threat against MasterCard

[April 01, 2009]  BRUSSELS (AP) -- European Union regulators said Wednesday they would drop a threat to fine MasterCard after the company promised to temporarily cut fees it charges for cross-border card purchases which can hike costs for shops.

In December 2007, the European Commission threatened the company with daily fines unless it scrapped the multilateral interchange fees that can discourage retailers from accepting payment cards from another EU nation.

Regulators say they will now monitor how MasterCard changes the way it charges these fees, which should from July be capped at 0.3 percent for credit card purchases and at 0.2 percent for debit card sales.

These fees varied in 2007 from 0.8 percent to 1.9 percent for credit cards and from 0.4 percent to more than 0.75 percent for debit cards.

MasterCard Europe said these new fees would only be in place until an EU court hears its appeal against the regulators' 2007 ruling to end the fees altogether -- and said they were high enough to support its business of processing payments in the longer term.

"These interim interchange fees significantly undervalue the benefits merchants receive from accepting payment cards, such as a payment guarantee and higher sales than with cash," it said in a statement.

Crossborder purchases are less than 5 percent of MasterCard's total payment volume in Europe, it said.

MasterCard has also promised to be clearer about how shoppers and retailers are charged for the payment cards they use and accept. The EU executive said shops will be offered and invoiced different rates for the type of card used.

MasterCard will also hold back from a new fee system it wanted to charge banks to issue its cards.

The EU executive warned that it was still investigating Visa, which was keen to stick to an average 0.7 percent interchange fee for processing credit and debit card payments outside the cardholder's country.

Europeans make more than 23 billion card payments every year worth over euro1.35 trillion. EU officials say the extra costs for using cards in another European nation holds back efforts to create a single market out of the EU's 27 member countries.

Regulators claim that retailers pass on these fees to customers in the final price they charge -- even to customers who pay in cash.

[Associated Press; By AOIFE WHITE]

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